COMMENTARY

April 22, 1990|By STEVE WELLER, Staff Columnist

Never let it be said that Bankruptcy Court Judge Burton R. Lifland doesn`t know a deadbeat when he sees one. Sure, it takes him a little longer than most to recognize the symptoms but, eventually, he understands.

Consider his handling of the Eastern Airlines debacle.

On March 10, 1989, Frank Lorenzo, corporate cannibal, took Eastern into bankruptcy. One year, 40 days and $1.2 billion in additional losses later, Lifland took control of the airline away from Lorenzo and turned it over to a trustee.

Maybe the judge isn`t slow. Maybe he`s just patient and fair to a fault. Whatever the case, the court had more than enough evidence to remove the cannibal at least six months earlier than it did. Only when Eastern`s uninsured creditors -- now there`s a scary business category -- got fed up and demanded appointment of a trustee did he act.

Back up to Feb. 24, 1986. On that day, Lorenzo, owner of Texas Air, bought Eastern for $676 million. I don`t know the financial details but, if he followed form, most of it was in IOUs and a stack of prefabicated check-is-in- the-mail letters.

There is no question the company was in bad shape when Lorenzo took charge. There is no question that the strike by machinists, pilots and flight attendants, which began six days before bankruptcy, made normal operations impossible.

There are major questions, however, about Lorenzo`s intentions when he took over the ailing airline.

In the days before junk bonds made it easy for hustlers to acquire baubles they couldn`t afford, if a tycoon bought a run-down business, he planned to put money into it and turn it around.

Lorenzo couldn`t wait to take money out. The easiest way to do that in a debt-ridden company is to sell off whatever profitable assets it owns. The cannibal had a really neat setup. He started selling assets to himself. At cut-rate prices.

The first to go was Eastern`s money-making reservations system. Lorenzo sold it to Texas Air (himself) for $100 million in see-you-laters. How much was the system really worth? Texas Air has a deal in the works to sell half of it for $250 million.

Easy to explain, said Lorenzo. He improved the product and made it more profitable and, therefore, worth five times what he paid himself for it.

Wonderful. But why didn`t he improve the reservations system and leave it where it belonged? Eastern could have used a guaranteed money-maker.

The cannibal`s next move didn`t work out as planned. He tried to give Eastern`s profitable New York shuttle to himself (Texas Air) for $265 million. The courts intervened. So he had to sell it to Donald Trump for something closer to its market value, $365 million. Oh well, at least it was real money and there was more of it.

I`ve gone through this stuff before but there has been one interesting development since the last discussion. Bankruptcy Examiner David I. Shapiro, another patient and forgiving individual, studied Lorenzo`s incestuous business style. And studied it and studied it. Finally, he concluded that the cannibal had underpaid Eastern as much as $403 million for the assets he sold himself.

Texas Air executives were aghast. But the company agreed to pay a $280 million penalty for the heists its leaders insist it didn`t commit.

Whatever you think about the union leaders who led the strike, they knew a lot more about their smooth-talking employer`s modus operandi than Judge Lifland did. They have predicted every crawfishing shuffle, every last minute weasel-out made by Lorenzo.

Most people question the sanity of workers who would strike themselves out of their jobs. I don`t. They knew the day the cannibal took over that Eastern`s days were numbered and their jobs, and the jobs of non-strikers, were doomed. They decided to get rid of him or take him down with them.